Integrating Online and Offline Shopping By David Hardesty, October 29, 2000 http://ecommercetax.com/doc/102900.htm This week, Barnes & Noble, Inc. announced initiatives aimed at integrating its stores with the Barnes & Noble.com Web site. The goal is to provide a better shopping experience for customers who want access to products through multiple channels. For mass retailers, closely linked online/offline shopping channels is likely to be the way of the future. Internet-only shopping will be limited to specialty stores. As clicks and mortar stores become integrated, the "entity isolation" technique, which allows online vendors to avoid collecting tax, will become less viable. In an October 26 press release, Barnes & Noble, Inc. announced plans to integrate its 551 retail stores with the online store, BN.com <http://www.bn.com>. The most important plans include placing terminals in each of the stores that allow customers to order directly from BN.com. Customers will be able to pay for online purchases using cash, checks or credit cards. They can pick up purchases at a Barnes & Noble store, or can have purchases delivered directly. Customers will be encouraged to return unwanted merchandise to local Barnes & Noble stores. Barnes & Noble and BN.com will jointly participate in a new customer loyalty program. The company has already put its new returns policy in place. The headline on the BN.Com Web site reads "Now...Easy Returns to Stores!" According to the company's press release, the ability to return purchases to a Barnes & Noble store is the "No. 1 request from our Internet customers." This policy is brand new. Until a few days ago the Web site warned online customers not to return products to local stores. Returns were allowed only by mail. In the past, Barnes & Noble has kept its online and offline operations separate. They are owned by separate corporations, and, as indicated by the previous returns policy, direct linking of the stores was discouraged. One advantage of operating its physical stores and online store separately was that the online store could avoid collecting sales tax in most states. Under a strategy known as "entity isolation," so long as the online and offline stores were owned by separate corporations, and were operated separately, the online store did not have to collect sales tax. [1] This strategy may have been somewhat helpful in competing with companies like Amazon, Inc., which does not collect tax on most of its sales. With the addition of in-store terminals, and in-store merchandise pickups and returns, the entities can no longer be said to be isolated. Does this mean the online store will have to start collecting sales tax? Yes, according to the New York Times.[2] However, as of the date of this article, the BN.Com Web site still reports a policy of collecting tax in only four states, Tennessee, New Jersey, New York, and Virginia.[3] It is worth watching the site to see how the company goes forward on the sales tax issue. B&N's plans probably represent the future for mass retailers. Customers will expect sellers to offer many ways to purchase goods and services. Assuming most mass retailers begin to integrate online and offline stores, and assuming this integration requires the online stores to collect sales tax, will this hurt them competitively? Probably not. The ability to interact with customers both online and offline presents major competitive advantages not enjoyed by Internet-only retailers. Some of the advantages are * In-store merchandise pick-up and return. * The ability to make online purchases with cash (many customers are still uncomfortable about giving credit card information online). * Reaching customers who do not have Internet access. * Cross promotion of the online and offline stores. These natural advantages should be more than enough to offset the fact that online stores will have to collect tax. In any case, it seems the Internet-only mass retailer may not be with us for long. Right now, the big Internet-only retailers exist because of Wall Street support. Once that support disappears, the stores may disappear as well. It may be that in the future only specialty stores will be online-only. These are stores that depend on a widely dispersed and highly targeted market. An example of a specialty retailer is Orion Telescopes and Binoculars.[4] This is a company with only three stores, all in California, but which sells to customers all over the country. Because it has presence only in California the company collects sales tax only in that state.[5] If the clicks and mortar companies begin to fully integrate, along the lines of Barnes & Noble, and if they all begin collecting sales tax on online sales, much of the political wrangling involving sales tax will die out. It is these high profile mass retailers that have earned the ire of state tax collectors, who fear substantial loss of sales tax revenues, and Main Street retailers, who complain of unfair competition. With the mass retailers collecting tax on online sales it will only be the Orion's that do not collect tax. These retailers are unlikely to be perceived as a threat to either the states or Main Street. In any case, most people would agree that to make a specialty retailer like Orion collect tax in all of the states in which it makes sales would be an unreasonable burden. [1] See Hardesty, "California Sales Tax for Clicks and Mortar?" EcommerceTax.com, 9/3/00, <http://ecommercetax.com/doc/090300.htm> ; and Hardesty, "No Level Playing Field in California," EcommerceTax.com, 10/8/00, <http://ecommercetax.com/doc/100800.htm> . [2] Kirkpatrick, "Book Chain Takes Steps to Coordinate Online Sales," NY Times, 10/27/00. [3] One 10/29/00 the bn.com Web site stated, "Sales tax is added to all orders delivered in TN, NJ, NY, and VA based on the appropriate rate of sales tax in each state. Federal tax is added to all orders delivered in Canada. We display this tax as GST (Goods and Services Tax)." ( <http://www.barnesandnoble.com/help/po_how_to_buy.asp>?). [4] <http://www.telescope.com> . [5] On 10/29/00 the Orion Web site indicated that sales tax is collected only in California. --- You are currently subscribed to members as: [email protected] To unsubscribe send a blank email to [EMAIL PROTECTED]
